TAX CUTS AND JOBS ACT EXECUTIVE SUMMARY

Transcription

1 TAX CUTS AND JOBS ACT EXECUTIVE SUMMARY Mariner Retirement Advisors INDIVIDUAL INCOME TAX CHANGES Individual Income Tax Rates Single - 10%, 15%, 25%, 28%, 33%, 35%, 39.6%. Top rate begins at income over $418,400. Married Filing Joint - 10%, 15%, 25%, 28%, 33%, 35%, 39.6%. Top rate begins at income over $470,700. Head of Household - 10%, 15%, 25%, 28%, 33%, 35%, 39.6%. Top rate begins at income over $444,550. Standard Deduction Single - $6,350 Married Filing Joint - $12,700 Head of Household - $9,350 Personal Exemption Alternative Minimum Tax $4,050 per dependent, subject to phase out with AGI over: Single - Phase out starting at $261,500 Married Filing Joint - Phase out starting at $313,800 Head of Household - $287,650 AMT Rate is 26% and 28%. The AMT Exemption is $54,300 for single, $84,500 for married filing joint. The 28% rate applies to alternative minimum tax income of $187,800 for all taxpayers, and $93,900 for married filing joint returns. Phase out threshold is $120,700 for single and head of household, and $160,900 for married filing joint. Single - 10%, 12%, 22%, 24%, 32%, 35%, 37%. Top rate begins at income over $500,000. Married Filing Joint - 10%, 12%, 22%, 24%, 32%, 35%, 37%. Top rate begins at income over $600,000. Head of Household - 10%, 12%, 22%, 24%, 32%, 35%, 37%. Top rate begins at income over $500,000. Single - $12,000 Married Filing Joint - $24,000 Head of Household - $18,000 Personal exemption is repealed. The rate remains the same. The AMT exemption amount is increased to $109,400 for married filing joint, $70,300 for other taxpayers. The phase out threshold is increased to $1,000,000 for married filing Joint and $500,000 for other taxpayers. However, the two main contributors to AMT taxable income were state taxes and miscellaneous itemized deductions. See below for changes to these items. This, coupled with the increase in standard deduction, should substantially reduce the number of AMT Taxpayers. MARINER RETIREMENT ADVISORS Page 1

2 INDIVIDUAL INCOME TAX CHANGES (CONTINUED) Itemized Deductions - General Medical Expense Miscellaneous Itemized Deductions Subject to 2% Floor Mortgage Interest Charitable Contributions State and Local Taxes Affordable Care Act 3.8% net investment income tax and additional.9% Medicare Tax Phase out of itemized deductions begins at: Single - $258,250 Married Filing Joint - $309,900 Head of Household - $284,050 Medical expenses exceeding 7.5% of AGI are deductible. Miscellaneous itemized deductions such as tax preparation fees, investment fees, work clothes costs, etc. are deductible to the extent they exceed 2% of Adjusted Gross Income. Education expense not exceeding $250 is also deductible for educators. Mortgage interest is deductible on first and second mortgage up to $1,000,000 for married filing joint ($500,000 for other taxpayers) on acquisition indebtedness. Home equity debt interest is limited to the smaller of $100,000 or the total market value of home less outstanding debt for married filing joint ($50,000 for other taxpayers). Charitable contributions made to qualifying 501(c )(3) organizations are deductible up to 50% of AGI. Contributions made to a Private Foundation are deductible up to 30% of AGI, and 20% of AGI for contribution of Long Term Capital Gain Property. A portion of the contribution made to a university for athletic tickets is also deductible. State and local taxes paid during the year are deductible subject to the phaseout provisions. A 3.8% tax is levied on investment income for taxpayers with AGI in excess of $200,000 for single, $250,000 for married filing joint, and $200,000 for head of household. A tax of.9% for Medicare is levied on taxpayers with wages that exceed the above thresholds. The phase-out of itemized deductions is repealed. The current law floor of 7.5% is extended to 2019 tax year. Fees paid for tax preparation are eliminated. Miscellaneous itemized deductions are repealed. Education expense not exceeding $250 for educators is retained. Mortgage interest is deductible for acquisition indebtedness up to $750,000 for married filing joint taxpayers ($375,000 for other taxpayers) on purchases made after December 31, Grandfathered debt acquired prior to December 15, 2017 is subject to the historic limitation of $1,000,000. The interest expense deduction on home equity debt is repealed for existing loans, and those loans made after December 31, The 50% AGI limitation is increased to 60% for Cash Contributions. No change for contributions to a Private Foundation. Contributions made to a university in conjunction with the right to purchase tickets or seating for athletic events is repealed. Deduction for state and local taxes is limited to $10,000. A deduction is allowed for taxes incurred in the carrying on of a trade or business, or imposed on business assets (Schedule C, Schedule E, or Schedule F). The repeal also applies to trusts and estates. See AMT above for impact of this item on AMT taxpayers. No change. MARINER RETIREMENT ADVISORS Page 2

3 INDIVIDUAL INCOME TAX CHANGES (CONTINUED) Alimony Payments Child Tax Credit Section 529 Accounts Qualified Moving Expenses Alimony payments are deductible in arriving at AGI by the Payor and the amount paid is income to the Recipient. A $1,000 per qualified child credit is allowed subject to phase out threshold of $75,000 for single, $110,000 for married filing joint, and $75,000 for head of household. Currently funds in these accounts may only be used for college expenses. A deduction for qualified moving expenses is allowed. For divorce or separation agreements entered into or modified after December 31, 2018, no deduction is allowed for payor and no income is included for recipient. The credit is increased to $2,000, of which up to $1,400 is a refundable credit. A $500 nonrefundable credit is allowed for non-child dependents. The phase out is increased to $200,000 for single and other taxpayers, and $400,000 for married filing joint. Up to $10,000 per year may be used to pay for K-12 expenses for elementary, high school, or homeschool expenses. See below regarding gifting to a 529 plan. The deduction is repealed except for members of the armed forces. ESTATE AND GIFT TAX CHANGES Estate Tax $5.49 million unified credit. Tax rate of 40% for taxable estates in excess of $1 million taxable amount. Gift Tax Annual gift tax exclusion is $14,000. Lifetime Gift Tax exclusion is $5.49 million. Tax rate is 40%. Generation-Skipping Transfer Tax Annual GST exclusion is $5.49 million per person. Tax rate is 40%. $10 million unified credit (indexed for inflation). The credit for 2018 is $11.2 million. Tax rate is unchanged. Annual gift tax exclusion increases to $15,000 in Lifetime Gift Tax exclusion is increased to $11.2 million for Tax rate is 40%. (Note a gift to a section 529 plan is treated as occurring over a period of 5 years.) Lifetime GST exclusion is increased to $11.2 million for Tax rate is 40%. MARINER RETIREMENT ADVISORS Page 3

4 BUSINESS INCOME TAX CHANGES C Corporation Income Tax Rates Self-created Property Carried Interest Qualified Transportation Fringe Benefit Meals and Entertainment Domestic Production Activities Deduction Current rate are 15% for taxable income less than $50,000, 25% of income between $50,000 and $75,000, 34% of income between $75,000 and $100,000, 39% for income between $100,000 and $335,000, 34% for income between $335,000 and $10,000,000, 35% over 10,000,000. Self Created property such as patents, formulas, etc. is treated as a capital asset, and taxed at capital gain tax rates. Under current law a carried interest (or sometimes referred to as a profits interest) held for more than one year prior to sale or conversion to cash, is subject to long term capital gain rates. Qualified transit passes and parking paid by an employer for an employee are deductible. Entertainment, amusement, recreation expenses and membership dues for a club are allowed as a deduction. Employer provided meals and beverages to employees is allowed as a deduction. Currently certain manufacturing entities are allowed a deduction for domestic production equal to 9% of qualified income. Flat Rate of 21%. Gain or loss from the sale of selfcreated intangible property is ordinary income. The election to treat musical compositions and copy rights in musical works as a capital asset is retained. The election to treat the transfer of a patent as long-term capital gain property is repealed. It is unclear how this change will impact self-created goodwill with respect to the sale of a business. A carried interest must be held for more than three years for any gain generated after December 31, 2017, notwithstanding whether an election under section 83(b) was made with respect to the interest. A deduction is disallowed for these fringe benefits. Entertainment, amusement, recreation and membership dues for a club are disallowed. 50% food and beverage deduction is retained. Deduction for employer provided meals is subject to 50% limitation. Repealed. MARINER RETIREMENT ADVISORS Page 4

5 BUSINESS INCOME TAX CHANGES (CONTINUED) 20% Deduction to Certain Pass-Through Income Limitation on business Loss Depreciation Expensing No provision. No limitation for active trade or business. NOL carryover is limited to 20 years, carryback is 2 years. Bonus depreciation of 50% of cost for qualified assets placed in service prior to 9/27/ Election $510,000 Sec. 179 expensing limitation. Phase-out begins with equipment placed in service exceeding $2,030,000. Individuals, trusts, and estates are allowed to deduct 20% of qualified business income from a partnership, S corporation, or sole proprietorship that is effectively connected with a U.S. trade or business. Qualified business income does not include reasonable compensation or guaranteed payments paid to the taxpayer. The amount of the deduction is limited to the greater of 50% of the taxpayer's allocable share of W-2 wages; or 25% of the taxpayer's allocable share of W-2 wages plus a capital element (2.5% of the original cost basis of depreciable tangible property placed in service in the past 10 years.) The W-2 limit does not apply to taxpayers with taxable income not exceeding $315,000 for married filing joint or $157,000 for other taxpayers. The deduction also does not apply to service business. The deduction approximates a tax rate of 29.6%. No limitation on carryover of NOL. No carryback is allowed. NOL carryover is limited to 80% of taxable income. An excess business loss is treated as a carryover. Excess business loss is the amount by which all net business losses exceed $500,000 for married filing joint and $250,000 for all other filers. Bonus depreciation of 100% of cost for qualified assets placed in service after 9/27/2017. Qualified assets now include used equipment and new equipment. Qualifying property includes property with a MACRS life of 20 years or less, water utility property, computer software, and qualified leasehold improvements (any improvements to an interior of a building that is nonresidential real property). $1,000,000 Sec. 179 expensing limitation. Phase-out begins at $2.5 million. MARINER RETIREMENT ADVISORS Page 5

6 BUSINESS INCOME TAX CHANGES (CONTINUED) Interest Expense No limitation on deduction. Limits the deductibility of net interest expense to 30% of earnings before interest, taxes, depreciation, and amortization (EBITDA) until 2022, and then 30% of earnings before interest and taxes thereafter. Automobile Depreciation Depreciation limited in year one to $11,600 including bonus, and $3,160 without bonus. $5,100 year two, $3,050 year three, and $1,875 in remainder years. Depreciation is limited to $10,000 year one, $16,000 year two, $9,600 year three, and $5,760 remaining years. If you have any questions about the tax law changes or their potential impact on your personal financial situation, please contact us. Contact us at: Source: Joint Explanatory Statement of the Committee of Conference DISCLOSURE This document is for informational use only. Nothing in this presentation is intended to constitute legal, tax, or investment advice. There is no guarantee that any claims made will come to pass. The information contained herein has been obtained from sources believed to be reliable, but Mariner Retirement Advisors does not warrant the accuracy of the information. Consult a financial, tax, or legal professional for specific information related to your own situation. Mariner Retirement Advisors ( MRA ) is an SEC registered investment adviser with its principal place of business in the State of Kansas. Registration of an investment advisor does not imply any level of skill or training. MRA and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which MRA maintains clients. MRA may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by MRA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MRA, including fees and services, please contact MRA or refer to the Investment Adviser Public Disclosure website ( Please read the disclosure statement carefully before you invest or send money. MARINER RETIREMENT ADVISORS Page 6